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A Smarter Way to Tax Big Banks

Make the cost of equity tax-deductible in the same way that the cost of debt is deductible.

By

Mark J. Roe And

Michael Tröge

Feb. 1, 2015 6:10 p.m. ET

President Obama has reanimated the idea of taxing the debt of big banks to help stabilize the banking industry and prevent future financial crises. The administration argues that the new tax would discourage banks from taking on too much risk by making it “more costly for the biggest financial firms to finance their activities with excessive borrowing.”

The president’s bank tax is unlikely to gain traction in the new Congress, following the failure of similar proposals from the administration in 2010 and last year from...